Claims that rising awards are pushing up insurance costs have no basis

It seems that rapidly escalating motor insurance premium charges are about to create a similar crisis to that faced in 1998 which led to the Motor Insurance Advisory Board (MIAB) being established to investigate the real causes of insurance inflation.

We are being told premiums are going up because awards are going up but the argument is not supported by published records of compensation awards. In fact there is a €1 billion difference between premium income and published awards.

We know from Central Bank data that the income of the 10 companies which underwrite motor and liability insurance is currently €1.4 billion a year. Court records show that during 2014 the courts collectively made 1,527 awards totalling €169 million in compensation. We also know from the recently published 2014 Personal Injuries Assessment Board (PIAB) report that it dealt with 7,519 cases resulting in compensation of €166 million. Their award acceptance rate by claimants was 60 per cent, consistent with the previous eight years.

Many court awards were against organs of the State which are self-insured and therefore do not feed in to the total of payments made by insurers, but these two sets of data account for only €335 million in compensation.

Compensation payments are not the only factor in insurance costs. Claims must be assessed for validity of either quantum or liability or both. In the case of uncontested claims assessed by PIAB that usually adds 6 per cent to the cost of the award, but in the case of litigation it is estimated at more than 50 per cent .

Even allowing for those administrative percentages adding €95 million to the overall costs, we arrive at a total outlay of €430 million .

This is a gap of €1 billion between premium income and awards made.

Where has this money gone? We don’t know.

This is because of the 31,576 injury claims registered in 2014, only 9,046 went to court or were finalised by PIAB and thus captured in the statistics. Presumably they were settled by the insurance companies.

In 22,530 cases, or 71 per cent per cent there is no transparency regarding the cost of settling claims or the awards.

Increased awards

Yet we are being asked to take the industry’s word for it that premiums must go up because of increased awards and costs.

This is reminiscent of the situation in 2002 which led to the establishment of PIAB in 2004. At that stage we had no visibility on the outcomes in 90 per cent of 35,000 litigation cases annually that did not proceed to trial. We just had to trust the industry’s word for it when it came to the cost of premiums. There is no space here to traverse the various successful reforms undertaken on foot of the MIAB report in 2002, which included establishment of the non-adversarial (PIAB) from which I retired in April 2014 after 10 years as non-executive chairwoman.

Suffice to say that the Central Statistics Office index reflects the fact that from the time of the MIAB report in 2002 to the end of 2013 the cost of motor insurance decreased in real terms by 40 per cent. It saddens me to see that since 2014 over half of those savings for consumers have been reversed and very significant further increases are projected.

Credible explanation

It is not clear why motor premiums are going up, especially given the relatively favourable national statistics on crashes, so we need action to provide consumers with a credible explanation.

There could be other reasons for insurance inflation. If policyholders are being asked to pay extra to increase solvency for the stability of the financial services market, that needs to be explained clearly.

However, it would be unwise of Insurance Ireland to allow two very different sources of influence to be lumped together in discussions that clearly require full transparency rather than selective calculations or random samples which are not robust.

Few believed at the time that the last investigation by MIAB could lead to such dramatic savings for consumers, as well as delivering compensation to injured parties in a maximum of nine months through PIAB rather than an average of three years through the old court system.

Is there not a clear lesson to be learned from this? Surely insurers would welcome the opportunity to validate the claims they are currently presenting?

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